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Summary
- Bank of Canada announced its key interest update on Wednesday morning, March 10.
- Bank of Canada governor Tiff Macklem reiterated in his previous addresses that the key interest rate will remain low until the economic recovery is well advanced.
- But with Canada’s financial rebound from the COVID-19 crisis reportedly being unexpectedly robust so far, some experts had projected a change of pace.
The country woke up to yet another key interest announcement from Bank of Canada on Wednesday, March 10. Once again, the top lender has decided to stick to the benchmark rate of 0.25 per cent, as many had already expected.
The Bank of Canada will also be maintaining its quantitative easing (QE) program of drawing at least C$ 4 billion per week.
The decisions don’t come as a surprise. Bank of Canada governor Tiff Macklem had reiterated in his previous addresses that the key interest rate will remain low and the QE program will stay until the economic recovery is well advanced. But with Canada’s financial rebound from the COVID-19 crisis reportedly being unexpectedly robust so far, some experts had projected a change of pace.
Key Interest Rate
Following the surge in COVID-19 infections, the new mutant variants and the reintroduction of lockdowns around the country, there was speculation regarding whether Bank of Canada would trim the interest rate even lower in January this year.
But then, the vaccine rollout program kicked in. And even with all its disruptions, Canada’s COVID-19 inoculation drive is going faster than earlier expected.
©Kalkine Group 2020
Canada’s economic recovery also grew in the anticipation of the US$ 1.9-trillion stimulus plan coming to its largest trading partner, the United States. Some experts believe that that mammoth bill, which was passed in the US Senate on March 6, could impact Canadian businesses further. Although, under President Joe Biden’s rule, the rise of the ‘Buy America’ program could be a point of concern.
Despite the improving health of the economy, which the central bank acknowledge, it stressed in Wednesday’s address that a “considerable economic slack” still persists.
While the key interest hike did not take place today, its due date may come sooner than previously expected as the economy heals, as per some reports. And before that happens, Bank of Canada is likely to lead with cutting back on its bond-buying program first.
Bond-Buying Program
Following the onset of the pandemic last year, Bank of Canada took to buying about C$ 4 billion worth of federal government bonds every week. The agenda of this process was to maintain its low borrowing costs until recovery was “well underway”, which the bank projected would happen sometime in 2023.
Although Bank of Canada has decided to continue with the same QE program for now, some economists predict that it may be revamped sooner than expected. As the economy continues to improve and reflects a chance of being healed from the coronavirus lows by 2022, the central bank might just not have to wait till 2023 to pull back on its bond-buying program.
While Wednesday’s announcement has cleared some doubts, a broader explanation and major changes can be expected in April, when Bank of Canada puts out fresh quarterly projections.
